Opinion: The Problem with Chinese Banks

Hugo Restall, Joseph Sternberg and Abheek Bhattacharya of the WSJ Asia opinion page discuss how Beijing is orchestrating a cover-up of its banking troubles.

This transcript has been automatically generated and may not be 100% accurate.

... Chinese banks are once again the focal point of trouble in the Chinese economy but Beijing seems to be covering all out ... on the big budget shy out ... with me is your stall the editorial page editor of The Wall Street Journal Asia ... and to talk about this for a sentence of that today is our in house Banking acts poetic ... justice done but on the business Asia column of the Wall Street Journal ... I Joe this is the panic in the markets when it comes to Chinese banks was going on well I couldn't quite say it's a panic but there's definitely some indicative signal starting to percolate in terms of stock prices and a Chinese bank it traded shares of them ... down something like what about thirty percent or so years since the start of the year ... this is a clear sign that there's some kind of couple while there ... may be said that the sea rebounded in the middle of this week and that was because the invisible hand somewhere ... well what we have now is the Chinese sovereign wealth funds or or an arm of that kind of creature of stepping in to buy shares from is it that these banks of the market is currently in an effort to boost the ... store crisis could use some of the sum market signals that were of the starting to see from actual traders ... so do you think that's ... a sign that there is a ... bank bailout coming isn't ready to return the signal that it's it's going to provide the necessary support ... well I know that is definitely one of very possible read on the second part of the problem of ... it in one of the things that seems to be driving some of this market concern of banks in the first places that we don't really ... have lot of clarity about anything in this situation I mean it's basically ... we don't have any clarity on how much purple some of the banks of balance sheets are in a sleep then expanding credit that are really ... phenomenal reader for the past few years ... yet so you know as a result of that we also don't have any indication of what the government strategy to repeat what will let's go back to the Navy and in the real news issue here which is as you mentioned which Emerson on of the cycle Goldman buying shares ... off and I I guess we're smelling a bailout are some of the bailout so to speak ... but this isn't like the United States ... in injecting Kaplan the Bank of America this is essentially a majority shareholder of the state-owned bank buying back shares this is as of Warren Buffett would be buying back shares in Berkshire Hathaway ... Sony why should we really because I mean the Chinese government thinks that ... he loved his back stock is undervalued and it's been using a share buyback because that's ... the usual rationale for share buybacks ... I think are cooking on an interesting point to riches that the unit to the extent that there are problems and potentially big problems with the knowledge that the Chinese banks this replay over differently than what we saw in the West and in Europe for the rest ... of the partly because hinted that it's a much more clues system to capital controls for they would necessarily have to worry about Ciuch ... of wearers of money out of the banking system over a powerful runs one ... of these major state-owned banks ... um that but you know I I think that the and ... again that that that sort of hard to understand the rationale for this awesome cool you knew the sovereign wealth fund purchases the sharers ... there's been some attempt occurred to me that these markets Topolsky people from asking ... tough questions at least for a will but longer and the danger might be to believe the moment ... when Beijing feels like they have to make that decision ... and then maybe also ... stop people from asking questions about the broader trend is economy and in ... to get the sense that a lot of this ... decline in the shares of the it's not only to Chinese banks but also other Chinese companies is ... a sense that people have but it was before investors have that ... the of the broader Chinese economies may be heading for some sort of ... a correction ... that would normally be of what you would expect the market to signal one is kind of fun of the circumstances precisely because I think there are a lot of reasons that the economist ... the report that China and wonder then how sustainable is the court that the than seen over the past few years ... up and I think that we're going into this a situation where the government is going to try the best they can commute this market cycles ... then the question is going to become it what point ... do they run out of ammunition and ... then having invested so much and trying to prop up these Bancshares what happens if they can't do it anymore and you know it sounds an even worse signal to the market ... by the Fed intervention stops working ... Alexey vision can find a way out of this thank you and your thinking joins us now ... well I think that it's going to be much harder for them than people tend to realize that the you know it's going to be much harder for them to deploy these big corn extreme tree sources that securing a belt ... that's going to be much harder for them to cut to influence ... market behavior whether it's through wrote this kind of puts keeping operation that entering this week with the banks ... are ... that they could do of his credit again this is people would like some people like to see but ... then they get back into the inflation ... trade offs are mean I think ... we're looking at possibly ... have been coming to make some tough decisions about ... saving some for companies ... versus accepting higher inflation secure way as something to lose well with cleaner that thank you Joe and thank you go on the big budget shy and watching Opinion Journal Asia